Industry Analysis for Southwest Airlines

Business Studies

Southwest Airlines with Porters Five Forces Analysis

Southwest Airlines is a major competitor in the U.S. air industry. The founders; Rollin King and Herb Kelleher, developed the idea of a low cost carrier and the airline airlines gained the first mover advantage when the inaugural flight took place in 1971. The airline has been very successful and following the acquisition of AirTran in 2011, the company is now the largest domestic carrier and the world's largest low cost carrier (Southwest Airlines, 2014). The firm has 45,000 employees and flies to 96 different destinations with its fleet of 680 Boeing aircraft (Southwest Airlines, 2014). Competing in the airline industry the company has a number of challenges which can be examined through Porters Five Forces Model.

Threat of New Entrants

The airline industry has a number of barriers to entry and exit which may constrain the potential for new competition. The high capital requirements may be partly overcome by the easy aviablety of lease aircraft, but the limited availability of take off and landing slots at peak times at the popular airports and the bureaucratic requirements for licenses reduce the potential threat of new entrants (Belobaba, Odoni, & Bamhart, 2009). With the industry having a reputation for high overheads and low profits, it may also be argued to be an unattractive industry (The Economist, 2014). Therefore, this threat is low.

Threat of Existing Competition

Competition within the airline indicatory has increased as the sector has been liberalized. With a price sensitive passenger base, and access capacity, the airlines are competing to sell the seats. In June 2013 - May 2014 the U.S. airline industry had an average load factor of 84.1%, carrying a total of 649 million passengers (Transtats, 2014). This was an improvement on 2013, when the load factor was 83.6% and 643 million passengers were carried (Transtats, 2014), but with a growth rate of only 0.9% this is a constrained growth industry. A cursory examination of the marketing of air travel indicates aggressive marketing tactics and the wide scale use of loyalty scheme to try and keep customers (by increasing commitment and perceived switching costs). With 16% of the market share (measured by revenue) Southwest is in a strong position (Transtats, 2014), but still faces a high level of competition especially as the firm is known for low prices and there are many other low cost carriers in today's market, and passages have low switching costs, so this is a serious threat.

Power of Buyers

No single purchaser accounts for any significant level of the firms' revenue, so the power of the customers is low. However, buyers tend to follow trends; if bad news about the company hits the news it can have a significant impact in the reputation and the decision of the individual buyers; alone they have no power, but the firm is reliant on the mass market to support the firm (Belobaba et al., 2009). The buyers have a low level of direct power, but the firm needs to satisfy them to survive.

Power of Suppliers